BILL NUMBER: SB 898 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY AUGUST 7, 2000
AMENDED IN ASSEMBLY JUNE 28, 2000
AMENDED IN ASSEMBLY AUGUST 26, 1999
AMENDED IN ASSEMBLY JULY 7, 1999
AMENDED IN ASSEMBLY JUNE 24, 1999
AMENDED IN SENATE JUNE 2, 1999
AMENDED IN SENATE APRIL 14, 1999
INTRODUCED BY Senator Dunn
(Coauthor: Senator Sher)
FEBRUARY 25, 1999
An act to amend Sections 10235.22 and 10236 of, and to add
Sections 10236.1, 10236.11, 10236.12, 10236.13, and 10236.14 to, the
Insurance Code, relating to long-term care insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 898, as amended, Dunn. Long-term care renewal provisions.
Existing law provides that every individual long-term care
insurance policy shall contain a renewal provision that is either
guaranteed renewable or noncancelable.
This bill would also require group long-term care policies and
certificates to be either guaranteed renewable or noncancelable.
This bill would require approval of the Insurance Commissioner
before individual or group long-term care insurance may be offered,
sold, issued, or delivered in this state, and would specify the
duties of insurers and the commissioner in this regard. This bill
would limit premium increases for these policies, as specified
, and would provide for a contingent benefit upon lapse, as
specified . The bill would enact other related provisions.
These provisions would apply to policies and certificates issued on
or after July 1, 2002, as specified.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. It is the intent of the Legislature that certain
premiums and conditions for long-term care insurance shall be subject
to the prior approval of the Insurance Commissioner.
SEC. 2. Section 10235.22 of the Insurance Code is amended to read:
10235.22. Benefits under individual long-term care insurance
policies issued before July 1, 2002, shall be deemed reasonable in
relation to premiums if the expected loss ratio is at least 60
percent, calculated in a manner which provides for adequate reserving
of the long-term care insurance risk. In evaluating the expected
loss ratio, due consideration shall be given to all relevant factors,
including the following:
(a) Statistical credibility of incurred claims experience and
earned premiums.
(b) The period for which rates are computed to provide coverage.
(c) Experienced and projected trends.
(d) Concentration of experience within early policy duration.
(e) Expected claim fluctuation.
(f) Experience refunds, adjustments, or dividends.
(g) Renewability features.
(h) All appropriate expense factors.
(i) Interest.
(j) Experimental nature of the coverage.
(k) Policy reserves.
(l) Mix of business by risk classification.
(m) Product features, such as long elimination periods, high
deductibles, and high maximum limits.
SEC. 3. Section 10236 of the Insurance Code is amended to read:
10236. Every long-term care policy and certificate shall be
either guaranteed renewable or noncancelable.
(a) "Guaranteed renewable" means that the insured has the right to
continue coverage in force if premiums are timely paid during which
period the insurer may not unilaterally change the terms of coverage
or decline to renew, except that the insurer may, in accordance with
provisions in the policy, and in accordance with Section 10236.1,
change the premium rates to all insureds in the same class. The
"class" is determined by the insurer for the purpose of setting rates
at the time the policy is issued.
(b) "Noncancelable" means the insured has the right to continue
the coverage in force if premiums are timely paid during which period
the insurer may not unilaterally change the terms of coverage,
decline to renew, or change the premium rate.
(c) Every long-term care policy and certificate shall contain an
appropriately captioned renewability provision on page one, which
shall clearly describe the initial term of coverage, the conditions
for renewal and, if guaranteed renewable, a description of the class
and of each circumstance under which the insurer may change the
premium amount.
SEC. 4. Section 10236.1 is added to the Insurance Code, to read:
10236.1. No individual or group long-term care insurance policy
or certificate may be offered, sold, issued, or delivered to a
resident of this state without the prior approval of the commissioner
pursuant to the provisions of this chapter.
The commissioner shall review and approve individual and group
policy forms and certificates and outlines of coverage.
All initial rate filings shall be subject to the following:
(a) No approval for an initial premium schedule shall be granted
unless the actuary performing the review for the commissioner
certifies that the initial premium rate schedule is sufficient to
cover anticipated costs under moderately adverse experience and that
the premium rate schedule is reasonably expected to be sustainable
over the life of the form with no future premium increases
anticipated. The certification may rely on supporting data in the
filing. The actuary performing the review may request an actuarial
demonstration that the assumptions the insurer has used are
reasonable. The actuarial demonstration shall include either premium
and claim experience on similar policy forms, adjusted for any
premium or benefit differences, relevant and creditable data from
other studies, or both.
(b) The insurer shall submit to the commissioner for approval a
rate filing for each policy form that includes at least all of the
following information:
(1) An actuarial memorandum that describes the assumptions the
insurer used to develop the premium rate schedule. The actuarial
assumptions shall include, but not be limited to, a sufficiently
detailed description of morbidity assumptions, voluntary lapse rates,
mortality assumptions, asset investment yield rates, a description
of all expense components, and plan and option mix assumptions. The
memorandum shall also include the expected lifetime loss ratio and
projections of yearly earned premiums, incurred claims, incurred
claim loss ratios, and changes in contract reserves.
(2) An actuarial certification consisting of at least all of the
following:
(A) A statement that the initial premium rate schedule is
sufficient to cover anticipated costs under moderately adverse
experience and that the premium rate schedule is reasonably expected
to be sustainable over the life of the form with no future premium
increases anticipated.
(B) A statement that the policy design and coverage provided have
been reviewed and taken into consideration.
(C) A statement that the underwriting and claims adjudication
processes have been reviewed and taken into consideration.
(D) A complete description of the basis for contract reserves that
are anticipated to be held under the form, to include all of the
following:
(i) Sufficient detail or sample calculations provided so as to
have a complete depiction of the reserve amounts to be held.
(ii) A statement that the assumptions used for reserves contain
reasonable margins for adverse experience.
(iii) A statement that the net valuation premium for renewal years
does not increase (except for attained-age rating where permitted).
(iv) A statement that the difference between the gross premium and
the net valuation premium for renewal years is sufficient to cover
expected renewal expenses, or if that statement cannot be made, a
complete description of the situations in which this does not occur
and the type and level of change in the reserve assumptions that
would be necessary for the difference to be sufficient. An aggregate
distribution of anticipated issues may be used as long as the
underlying gross premiums maintain a reasonably consistent
relationship. If the gross premiums for certain age groups appear to
be inconsistent with this requirement, the commissioner may request
a demonstration under subdivision (a) based on a standard age
distribution.
(E) A statement that the premium rate schedule is not less than
the premium rate schedule for existing similar policy forms also
available from the insurer except for reasonable differences
attributable to benefits or a comparison of the premium schedules for
similar policy forms that are currently available from the insurer
with an explanation of the differences.
The provisions of this section are applicable to all policies and
certificates issued on or after July 1, 2002. Until July 1, 2002, or
90 days after approval of policies and certificates submitted for
approval pursuant to this section, whichever comes first, insurers
may continue to offer and market previously approved long-term care
insurance policies and certificates.
SEC. 5. Section 10236.11 is added to the Insurance Code, to read:
10236.11. All actuaries used by the commissioner to review rate
applications submitted by insurers pursuant to this chapter, whether
employed by the department or secured by contract, shall be members
of the American Academy of Actuaries with at least five years'
relevant experience in long-term care insurance industry pricing. If
the department does not have actuaries with the experience required
by this section, the commissioner shall contract with actuaries to
review all rate applications submitted by insurers pursuant to this
chapter. If the department has actuaries that have experience
required by this section, but not enough of those experienced
actuaries to perform the volume of work required by this chapter, the
commissioner may contract with independent actuaries, as necessary.
The commissioner shall promulgate regulations to maintain the
confidentiality of rate filings and proprietary insurer information
and to avoid conflicts of interest should independent actuaries be
used.
SEC. 6. Section 10236.12 is added to the Insurance Code, to read:
10236.12. No insurer may increase the premium for an individual
or group long-term care insurance policy or certificate approved for
sale under this chapter unless the insurer has received prior
approval for the increase from the commissioner.
The insurer shall submit to the commissioner for approval all
proposed premium rate schedule increases, including at least all of
the following information:
(a) Certification by a qualified actuary that:
(1) If the requested premium rate schedule increase is implemented
and the underlying assumptions, which reflect moderately adverse
conditions, are realized, no further premium rate schedule increases
are anticipated.
(2) The premium rate filing is in compliance with the provisions
of this section.
(b) An actuarial memorandum justifying the rate schedule change
request that includes all of the following:
(1) Lifetime projections of earned premiums and incurred claims
based on the filed premium rate schedule increase, and the method and
assumptions used in determining the projected values, including
reflection of any assumptions that deviate from those used for
pricing other forms currently available for sale.
(A) Annual values for the five years preceding and the three years
following the valuation date shall be provided separately.
(B) The projections shall include the development of the lifetime
loss ratio, unless the rate increase is an exceptional increase.
(C) The projections shall demonstrate compliance with subdivision
(a) of Section 10236.13.
(D) In the event the commissioner determines that a premium rate
increase is justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state, then:
(i) The projected experience should be limited to the increases in
claims expenses attributable to the changes in law or regulations.
(ii) In the event the commissioner determines that potential
offsets to higher claims costs may exist, the insurer shall be
required to use appropriate net projected experience.
(2) Disclosure of how reserves have been incorporated in this rate
increase.
(3) Disclosure of the analysis performed to determine why a rate
adjustment is necessary, which pricing assumptions were not realized
and why, and what other actions taken by the company have been relied
on by the actuary.
(4) A statement that policy design, underwriting, and claims
adjudication practices have been taken into consideration.
(5) In the event that it is necessary to maintain consistent
premium rates for new certificates and certificates receiving a rate
increase, the insurer shall file composite rates reflecting
projections of new certificates.
(c) A statement that renewal premium rate schedules are not
greater than new business premium rate schedules except for
differences attributable to benefits, unless sufficient justification
is provided to the commissioner.
(d) Sufficient information for approval of the premium rate
schedule increase by the commissioner.
(e) The provisions of this section are applicable to all policies
and certificates issued on or after July 1, 2002. Until July 1,
2002, or 90 days after approval of policies and certificates
submitted for approval pursuant to this section, whichever comes
first, insurers may continue to offer and market previously approved
long-term care insurance policies and certificates.
SEC. 7. Section 10236.13 is added to the Insurance Code, to read:
10236.13. Approval of all premium rate schedule increases shall
be subject to the following requirements:
(a) Premium rate schedule increases shall demonstrate that the sum
of the accumulated value of incurred claims, without the inclusion
of active life reserves, and the present value of future projected
incurred claims, without the inclusion of active life reserves, will
not be less than the sum of the following:
(1) The accumulated value of the initial earned premium times 58
percent.
(2) Eighty-five percent of the accumulated value of prior premium
rate schedule increases on an earned basis.
(3) The present value of future projected initial earned premiums
times 58 percent.
(4) Eighty-five percent of the present value of future projected
premiums not in paragraph (3) on an earned basis.
(b) In the event the commissioner determines that a premium rate
increase is justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state, a premium rate schedule increase may be approved if
the increase provides that 70 percent of the present value of
projected additional premiums shall be returned to policyholders in
benefits and the other requirements applicable to other premium rate
schedule increases are met.
(c) All present and accumulated values used to determine rate
increases should use the maximum valuation interest rate for contract
reserves. The actuary shall disclose as part of the actuarial
memorandum the use of any appropriate averages.
(d) If the requested premium rate schedule increase on any policy
form exceeds 15 percent or the requested premium rate schedule
increase on any policy form plus all prior increases in the premium
rate schedule for the same policy form exceed 15 percent, no request
for a rate increase on any policy form shall be approved by the
commissioner except as follows: all the insurer's individual
experience on long-term care policy forms issued in this state are
pooled together to project future claims experience and the combined
experience satisfies the requirements in subdivision (a). An insurer
is not precluded from filing requests for premium rate schedule
increases on all its policy forms if the combined experiences after
pooling all its prior policy forms satisfies the requirements of
subdivision (a).
(e) No approval for an increase in the premium schedule shall be
granted unless the actuary performing the review for the commissioner
certifies that if the requested premium rate schedule increase is
implemented and the underlying assumptions, which reflect moderately
adverse conditions, are realized, no further premium rate schedule
increases are anticipated. The certification may rely on supporting
data in the filing.
(f) The provisions of this section are applicable to all policies
and certificates issued on or after July 1, 2002. Until July 1,
2002, or 90 days after approval of policies and certificates
submitted for approval pursuant to this section, whichever comes
first, insurers may continue to offer and market previously approved
long-term care insurance policies and certificates.
SEC. 8. Section 10236.14 is added to the Insurance Code, to read:
10236.14. Premium rate schedule increases that have been approved
shall be subject to the following:
(a) For each rate increase that is implemented, the insurer shall
file for approval by the commissioner updated projections, as defined
in paragraph (1) of subdivision (b) of Section 10236.12, annually
for the next three years and include a comparison of actual results
to projected values. The commissioner may extend the period to
greater than three years.
(b) (1) If the commissioner has determined that the actual
experience following a rate increase does not adequately match the
projected experience and that the current projections under
moderately adverse conditions demonstrate that incurred claims will
not exceed proportions of premiums specified in subdivision (a), the
commissioner may require the insurer to implement any of the
following:
(A) Premium rate schedule adjustments.
(B) Other measures to reduce the difference between the projected
and actual experience.
(2) In determining whether the actual experience adequately
matches the projected experience, consideration should be given to
paragraph (5) of subdivision (b) of Section 10236.12, if applicable.
(c) The insurer shall provide a contingent benefit upon lapse that
shall be made available not less than 90 days following any increase
in premium rates. The contingent benefit upon lapse shall be
triggered each time a premium increase is granted. The contingent
benefit upon lapse shall be a fully paid-up shortened benefit period,
and shall be 100 percent of the cumulative premium paid. The type
of contingent benefit upon lapse provided shall be the same as
benefits purchased under the lapsed contract. Unless otherwise
required, policyholders shall be notified at least 30 days prior to
the due date of the premium reflecting the rate increase. The notice
shall include a referral to the local Health Insurance Counseling
and Advocacy Program or to the toll-free telephone number ((800)
434-0222) of the Health Insurance Counseling and Advocacy Program.
(d) (1) If the rate increase is not the first rate increase
requested for the specific policy form or forms, the commissioner
shall review, for all policies included in the filing, the projected
lapse rates and past lapse rates during the 12 months following each
increase to determine if significant adverse lapsation has occurred
or is anticipated.
(2) In the event significant adverse lapsation has occurred, is
anticipated in the filing or is evidenced in the actual results as
presented in the updated projections provided by the insurer
following the requested rate increase, the commissioner may determine
that a rate spiral exists. Following the determination that a rate
spiral exists, the commissioner may take appropriate action,
including, but not limited to, requiring the insurer to offer,
without underwriting, to all in force insureds subject to the rate
increase the option to replace existing coverage based on original
issue age with one or more reasonably comparable products being
offered by the insurer or its affiliates.
(e)
(c) If the commissioner demonstrates, based upon credible
evidence, that an insurer has engaged in a persistent practice of
filing inadequate premium schedules, the commissioner may, in
addition to any other authority of the commissioner under this
chapter, and after the insurer is afforded proper notice and due
process, prohibit the insurer from filing and marketing comparable
coverage for a period of up to five years or from offering all other
similar coverages, and may limit marketing of new applications to the
products subject to recent premium rate schedule increases.
(f)
(d) This section shall not apply to life insurance policies
and certificates that accelerate benefits for long-term care.
(g)
(e) The provisions of this section are applicable to all
policies and certificates issued on or after July 1, 2002. Until
July 1, 2002, or 90 days after approval of policies and certificates
submitted for approval pursuant to this section, whichever comes
first, insurers may continue to offer and market previously approved
long-term care insurance policies and certificates.